Cendant sues Ernst & Young 1-25-99

CBS.MarketWatch.com

PARSIPPANY, N.J. (CBS.MW) -- Shares of Cendant may be affected Tuesday as the company filed a lawsuit against Ernst & Young Monday for damages incurred from class actions brought against Cendant for accounting irregularities.

The consumer and business services giant (CD)
CD, +0.00%
said the irregularities occurred in April 1998 and the financial statements, alleged to be the basis of the accounting irregularities, were audited and certified by Ernst & Young, Cendant said. See press release.

Ernst & Young, in turn, said the suit was "without merit" and said it would "bring claims against Cendant for the fraud it perpetrated against Ernst & Young." See related press release.

Ernst & Young was the accounting firm during 1995 and 1997 for CUC International, the company that merged with HFS Inc. in December 1997 to create Cendant, Cendant said. During its 1998 second and third quarters, Cendant said it found the irregularities in CUC's financial statements for 1995 through 1997. The company also said this includes a "fictitious" pre-tax income over $500 million.

In its complaint, Cendant included: Ernst & Young didn't perform the audits "in accordance with professional standards required and discharged its duties with gross negligence," and said Ernst & Young was aware in 1997 that "heavy reliance" would be placed on its financial reports of CUC International.

CBS.MarketWatch.com first reported on the irregularities in August 1998. At that time, Cendant restated its 1995-97 financial results, as a result of the confusion. See related story.

In addition, Alexander Cutler, portfolio manager at Brandywine Asset Management, picked Cendant as one of his favorites and said, "Cendant has a significant presence on the Web without any recognition for it. These are companies that are adept at exploiting new opportunities," he says. See DeepPockets.

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